chapter  4
13 Pages

Equity markets, stock markets and real estate

The stock market, where ownership in companies is bought and sold, is a market where you must have a license or pay someone with a license to buy and sell assets for you. Securities brokers are such people, and are paid a commission for their services. There are three general ways firms can set up their ownership: sole proprietorships, partnerships or corporations. Corporations are companies that issue certificates of ownership, known as shares, and use equity markets to finance real asset purchases initially. Suppose you were a partner in a computer software company. You and your partner decide you need more office space for your employees. Your firm has three ways it can finance this expansion. The firm can use its retained earnings, or the accumulated profits the company has hopefully made and accrued over time. Second, your firm can also take a loan from a bank or find some debt instrument to gain access to cash and pay interest and principal over time. Finally, your firm can expand equity and find new partners who will help finance the expansion as trade for partnership, or go public and expand ownership through the equity market.